Greece: Financial Sector Assessment Program-Technical Note on Regulation and Supervision of Less Significant Institutions

This paper discusses a Technical Note on Regulation and Supervision of Less Significant Institutions (LSIs) for the Greece Financial Sector Assessment Program (FSAP). Supervision of less significant institutions is effective in Greece. Bank of Greece (BoG) would benefit from articulating a risk tolerance framework for the supervision of LSIs. Currently, there is no internal or external explanation of BoG’s tolerance to risk in the supervision of LSIs. The FSAP encourages BoG to maintain and build on its well-embedded supervisory approach and should review its resourcing needs in an agile manner. Credit risk remains the most important risk for Greek LSIs and BoG should continue to monitor LSIs’ nonperforming loans and credit risk management closely. The other risks that warrant ongoing and increased attention are interest rate risk in the banking book and operational risk. With the Greek economy growing and the banking system on a more stable footing, it is an opportune time for authorities to introduce regulations in areas where there is no applicable EU framework and to deal with legacy issues.